In some previous blogs we have touched on having a trading plan and tracking your trades. I even included an Excel trade log to use. You should treat trading the same way you would a business, that you owned. If you start a business and need to borrow money, the first thing a lending institution is going to ask for is a business plan. So traders need a trading plan. I suggest you keep it simple. If you keep it simple, it will be easier for you to follow. Below are some ideas to include in your plan:
Goals: Include both monetary and time requirements.
Example – “I am starting with a $10,000 account. My goal is to achieve 2% per month this year.”
Tools: Include trading platform, indicators, software packages, etc.…..
Trade Types: List each type of trade you are going to take.
Risk Management: What is the risk you are willing to take on each type of trade? List it for each trade type or do a separate trade plan for each type of trade.
Example – I will risk no more than _% trading directionally.
Trade Rules: List the trade rules for each trade type. Include items like entry requirement, stops, targets and other conditions.
Example – 1. I will not trade on Mondays. 2. I do not trade Friday’s after expiration. 3. I only trade FANG stocks. 4. I stop trading after hitting my monthly goal. 5. I do not trade during FOMC.
Overall Risk Management: Include maximum total risk at one time. If day trading, include maximum risk the day or week. If you hit that mark stop trading.
Example – I will risk no more than 2% of my account on any given trade.
These are some good starting points to developing your own trading plan. Make it your plan and make sure you are comfortable with the plan. If you are, it will easier to follow.
I prefer to have a separate plan for each trade. Then it makes it easier to focus on the trade I am setting up. I suggest you print them out and have them in front of you when setting up the trade. Then ask yourself, does this trade meet the requirements of my plan before entering the trade.
I hope this was helpful.